Q & A Subject: Can your Counsel Help You Minimize Risk?
Milo: Scott, many people think they need a lawyer only when they get sued or want to sue someone. Is this true?
Scott: No, a lawyer should be viewed as a resource to minimize risks before they occur, not just litigate. Said another way, a good lawyer should help their clients prevent fires, not just fight them.
Marc: Give us an example of ways you can help clients prevent fires/minimize risk?
Scott: One of my favorite examples is to ask a business client to describe their biggest most important asset. Most typically I get answers, like my building; my inventory, etc. However, the real answer is "customers". Without customers the business does not need the trucks, the inventory or even employees.
So, protecting this asset (customers) is very important. One way to do so is to use employment covenants, which are really contracts between the business and its key employees that attempt to keep the customers from being taken upon the departure of the employee by choice or by termination.
Years ago we used primarily covenants not to compete that attempted to keep employee from leaving and competing with your business. However the courts have severely restricted these covenants and look upon them with disfavor making them less useful. We therefore have developed covenants not to solicit or service you customers which can be much more effective.
These covenants if properly drafted and correctly presented to the employee for execution can significantly reduce the risk of customer loss.
We also assist businesses to send appropriate warning letters to departed employees to remind them of their obligations.
By the way we also use these covenants to preclude departed employees from stealing away other employees or sensitive business information sometimes called trade secrets.
Milo: Can you give us another example of risk management by a lawyer for a business?
Scott: Sure, one that comes to mind is reviewing a client's contracts in use to determine if they do what they are supposed to accomplish. And, we extend this to new contracts, warranties etc. to be certain they are proper in form and work as expected.
Marc: Is there something that can be done on an ongoing basis to counsel your business clients?
Scott: Yes many things, but one important feature is to become involved in the clients area of business. This can come from activity in trade association activities and even monitoring proposed legislation that can have significant effect on their business. We have done this for landscapers, pest control companies and many others, and have even help draft the laws that govern the industry.
Having counsel that cares about and understands you industry is key to minimizing risk.
Milo: Scott, can you tell us whether regulation and legal penalties are something that can be managed?
Scott: Of course. Many businesses are governed by state or federal agencies that have intensive regulation. Keeping abreast of those regulations and learning how to best follow them by designing good systems is something a lawyer can do with the help of the client and others
Another area of concern is Arizona's employer sanction law. Keeping proper documentation and knowing what is and is not required can make the difference between compliance or the suspension or even revocation of state issued licenses.
Marc: Can lawyers, insurance agents and other professionals collaborate on managing a business client's risk?
Scott: Yes and often we do so. Bringing various disciplines to bear on business issues allows the risks to be allayed through different filters from varying viewpoints. I am surprised more business clients do not insist on this approach.
Milo: Finally, with the economic troubles we have seen lately, should businesses delay efforts to manage risk and put their available resources elsewhere?
Scott: I cannot make these types of financial decisions for clients but I can offer that business risk exists in good times and in bad times. However, in bad times the effect of a risk becoming realty may be fatal to a business. Imagine a departed employee without a good employment covenant leaves and takes a key client. This alone may destroy the business.